One evening in January 2004, at Alibaba’s headquarters in China, Ma Yun, a famous Chinese internet entrepreneur, met with executives from Taobao, a new customer-to-customer (C2C) website founded by Alibaba. The leader of Taobao’s management team, Tongyu Sun, reported that the fledgling company was struggling against eBay Eachnet’s stranglehold on the industry. In 2002, eBay purchased a 33 per cent shareholding in Eachnet, the largest Chinese e-business company, and in June 2003 purchased the remaining shares, renaming the company eBay Eachnet. Following the acquisition, eBay announced that China would be its second target market following the United States, and began to make aggressive moves to block Taobao’s marketing channels in the Chinese market. This resulted in nearly all the main portal websites refusing to promote Taobao because of their exclusive contracts with eBay. Although Ma had foreseen a heavy attack from eBay and prepared a large promotion budget for Taobao, Sun found he had difficulty in spending the money effectively. If it were unable to attract more customers quickly, how could Taobao survive?
The birth of Taobao
Alibaba.com, the flagship company of Alibaba Group, was not widely known in 2004, despite the company being established in 1999 by Ma and 18 employees. Ma’s vision for Alibaba was to build a ‘bazaar online’, establish a world-class Chinese brand and become one of the world’s top 10 websites. When the company was established, there were several e-commerce business models operating, mostly in the United States: business-to-business (B2B), business-to-customer (B2C) and customer-to-customer (C2C). Amazon, one of the top five US websites, was a model in the field of B2C and eBay was the world’s largest C2C marketplace.